Sri Lanka requests equity swap for some of its $8 bln China debt

Ben Blanchard

BEIJING, April 9 (Reuters) - Sri Lanka has asked China to
swap some of the $8 billion the Indian Ocean country owes
Beijing for equity in infrastructure projects and offered to
sell stakes in Sri Lankan companies to Chinese ones, Sri Lankan
officials said on Saturday.

The ouster of President Mahinda Rajapaksa, who steered Sri
Lanka toward China until 2015, was a setback for ties, as his
successor reviewed projects to check if they were fair and
legal.

Now President Maithripala Sirisena's government, faced with
falling foreign reserves, a balance of payments crunch and few,
if any, alternative investors, is heading back into China's
embrace, albeit asking for better terms.

Speaking to reporters in Beijing, Sri Lankan Prime Minister
Ranil Wickremesinghe said his indebted country was suffering
because of global economic uncertainty.

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"We've been talking with some companies and also the
government of China about the possibility of some infrastructure
projects becoming public-private partnerships, in which part of
the debt will become equity held by the Chinese companies," he
said.

International trade minister Malik Samarawickrama said Sri
Lanka would also like additional funds from China, though they
had not asked for a specific amount.

"We want to reduce the current debt by inviting Chinese
companies, Chinese investors, to look at some of the enterprises
in Sri Lanka, the state-owned enterprises, with a view to taking
at least part of that equity over," he said.

"Then we can reduce the current debt that we have and open
up the opportunity for us to take more funds from Chinese
banks."

Sri Lanka upset China when it ordered a review of a $1.4
billion Colombo port city project last year, citing
irregularities in the award of the contract to state-owned China
Communications Construction Company (CCCC) by the
previous government.

Last month, the government, grappling with a difficult
economy, ordered the Chinese firm to resume work on the project,
the country's biggest foreign investment project, that includes
apartments, shopping malls and marinas.

But CCCC, which had estimated that the shutdown would result
in losses of more than $380,000 a day, has sought compensation
of $125 million, according to Sri Lanka, which has said it can't
pay and wants to negotiate.

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"The company has asked for additional compensation in view
of the fact they say there has been a delay," Wickremesinghe
said. "But I think we can talk and settle it."

Chinese projects in Sri Lanka have unnerved India, but
Wickremesinghe said there was no security threat from the port.

"It's an opportunity for everyone to make money. That's what
we do in Asia."
(Reporting by Ben Blanchard)